The convenience of using your debit card is not free. The average transaction fee to the merchant from your bank is 44 cents. The Fed estimates that in 2009 these fees totaled $15.7 billion. Of course, this cost gets passed on to us consumers.
Meanwhile, banks' average cost of servicing debit card transactions with merchants is 4 cents. So, on average they make 40 cents or 1,000% gross profit on each transaction!
Democrat Sen. Dick Durbin has proposed that the Fed require banks to lower debit-card fees to a level closer to the actual cost of transactions. The so-called Durbin amendment gives a specific exclusion for small or community banks with under $10 billion in assets, so that the Fed's new price-setting power won't inadvertently favor big banks with economies of scale which can more easily lower their fees than small and community banks.
But of course others in Congress are trying to protect the TBTF banks' fee scam. They say they are trying to protect consumers and smaller banks.
Who will win?
Since nobody is paying attention or seems to care, I put my 44 cents on the big banks.
The takeaways for smart consumers seems to be: use a small local bank; and use cash. Help yourself and others out by leaving your credit and debit cards at home.
By Simon Johnson
May 12, 2011 | New York Times